10-QPeriod: Q3 FY2002

ATMOS ENERGY CORP Quarterly Report for Q3 Ended Jun 30, 2002

Filed August 14, 2002For Securities:ATO

Summary

Atmos Energy Corporation's (ATO) third quarter of fiscal year 2002 filing shows a significant turnaround in profitability compared to the prior year's comparable quarter. Net income for the three months ended June 30, 2002, was $3.3 million, a substantial improvement from a net loss of $3.4 million in the same period of 2001. This improvement was driven by a strong increase in gross profit, largely due to the inclusion of Louisiana Gas Service operations and increased sales volumes, alongside a positive contribution from gas trading margin, which swung from a loss to a gain. Despite an increase in operating expenses, primarily due to higher operation and maintenance costs and depreciation from acquisitions, the company managed to achieve positive operating income. The nine-month results for the period ended June 30, 2002, also indicate robust performance with net income of $65.3 million, slightly up from $63.6 million in the prior year. While total operating revenues decreased year-over-year due to lower gas prices and reduced sales volumes (partially offset by the Louisiana Gas Service acquisition), gross profit and gas trading margin showed considerable strength. The company is actively managing its financial condition, with a focus on operating cash flow and maintaining adequate liquidity through its committed credit facilities. Investors should note the ongoing integration of acquired assets and the company's strategies to manage commodity price volatility.

Key Highlights

  • 1The company reported a net income of $3.3 million for the three months ended June 30, 2002, a significant improvement from a net loss of $3.4 million in the same period of the previous year.
  • 2Gross profit for the three-month period increased by approximately 20% year-over-year, driven by higher sales volumes and the inclusion of Louisiana Gas Service operations.
  • 3Gas trading margin turned positive, showing $12.3 million in the current quarter compared to a loss of $3.2 million in the prior year's quarter, indicating improved performance in non-regulated energy trading activities.
  • 4Total operating revenues decreased year-over-year for both the three-month and nine-month periods, primarily due to lower average gas sales prices resulting from decreased gas costs.
  • 5Operating expenses increased in the current quarter and year-to-date, largely due to higher operation and maintenance costs and depreciation associated with recent acquisitions (Louisiana Gas Service).
  • 6The company's net income for the nine months ended June 30, 2002, was $65.3 million, a slight increase from $63.6 million in the prior year.
  • 7Cash provided by operating activities for the nine months ended June 30, 2002, significantly increased to $301.7 million from $145.5 million in the prior year.

Frequently Asked Questions

The primary driver for the improved profitability was a combination of factors including an increase in gross profit due to higher sales volumes and the inclusion of operations from the Louisiana Gas Service acquisition. Additionally, the gas trading margin saw a significant positive swing, moving from a loss in the prior year's quarter to a substantial gain in the current quarter.

Operating revenues have decreased in both the three-month and nine-month periods compared to the prior year. This is largely attributed to a significant decrease in the average sales price of natural gas, which is a direct result of lower average costs of gas. While this reduces top-line revenue, the company's gross profit is generally not adversely affected because fluctuations in gas prices are passed through to customers.

The company believes that internally generated funds, its credit facilities, commercial paper program, and access to public debt and equity markets provide sufficient liquidity for its working capital needs, capital expenditures, and other cash requirements for the remainder of fiscal 2002. They have committed credit facilities totaling $318.0 million, with commercial paper rated A-2 by Standard & Poor's and P-2 by Moody's.

The company is involved in several legal proceedings, including a class-action lawsuit regarding royalty underpayments and litigation related to a gas-fired electric generating facility. They are also addressing environmental matters related to manufactured gas plant sites and mercury contamination. While the company is vigorously defending these actions, they believe the final outcomes will not have a material adverse effect on their financial condition, results of operations, or net cash flows, as they have adequate insurance and/or reserves.